A mathematical approach to order book modeling
From MaRDI portal
Publication:2853371
Abstract: Motivated by the desire to bridge the gap between the microscopic description of price formation (agent-based modeling) and the stochastic differential equations approach used classically to describe price evolution at macroscopic time scales, we present a mathematical study of the order book as a multidimensional continuous-time Markov chain and derive several mathematical results in the case of independent Poissonian arrival times. In particular, we show that the cancellation structure is an important factor ensuring the existence of a stationary distribution and the exponential convergence towards it. We also prove, by means of the functional central limit theorem (FCLT), that the rescaled-centered price process converges to a Brownian motion. We illustrate the analysis with numerical simulation and comparison against market data.
Recommendations
- Limit order books, diffusion approximations and reflected SPDEs: from microscopic to macroscopic models
- A level-1 limit order book with time dependent arrival rates
- Ergodicity and diffusivity of Markovian order book models: a general framework
- Price dynamics in a Markovian limit order market
- A diffusion approximation for limit order book models
Cites work
- A stochastic model for order book dynamics
- Analyzing and modeling 1+1d markets
- Market efficiency and the long-memory of supply and demand: is price impact variable and permanent or fixed and temporary?
- Markov Chains and Stochastic Stability
- Stability of Markovian processes I: criteria for discrete-time Chains
- Stability of Markovian processes II: continuous-time processes and sampled chains
- Stability of Markovian processes III: Foster–Lyapunov criteria for continuous-time processes
- Stochastic-Process Limits
- Zero-intelligence realized variance estimation.
Cited in
(37)- Analysis of order book flows using a non-parametric estimation of the branching ratio matrix
- Exact solution to two-body financial dealer model: revisited from the viewpoint of kinetic theory
- Global order routing on exchange networks
- Confidence interval for correlation estimator between latent processes
- Statistical inference for ergodic point processes and application to limit order book
- Ergodicity and diffusivity of Markovian order book models: a general framework
- Quasi-likelihood analysis for marked point processes and application to marked Hawkes processes
- ON BOUNCING GEOMETRIC BROWNIAN MOTIONS
- Diffusive behavior and the modeling of characteristic times in limit order executions
- Limit order books, diffusion approximations and reflected SPDEs: from microscopic to macroscopic models
- Rigorous results for the Stigler-Luckock model for the evolution of an order book
- Modelling the shape of the limit order book
- On the forward algorithm for stopping problems on continuous-time Markov chains
- Inventory accumulation with multiple products
- Optimal inventory management and order book modeling
- Modelling intensities of order flows in a limit order book
- Semi-Markov model for market microstructure
- Long-time behavior of a Hawkes process-based limit order book
- Optimal liquidity-based trading tactics
- Estimation of correlation between latent processes
- Stationary distribution of the volume at the best quote in a Poisson order book model
- Disentangling and quantifying market participant volatility contributions
- The order book as a queueing system: average depth and influence of the size of limit orders
- Dynamic optimal execution in a mixed-market-impact Hawkes price model
- A one-level limit order book model with memory and variable spread
- Limits of Limit-Order Books
- Clearing price distributions in call auctions
- Analysis of a decision model in the context of equilibrium pricing and order book pricing
- Scaling limit of a limit order book model via the regenerative characterization of Lévy trees
- Optimal market dealing under constraints
- High frequency trading and asymptotics for small risk aversion in a Markov renewal model
- Second order approximations for limit order books
- Variable diffusion in stock market fluctuations
- Deep learning for limit order books
- HYDRODYNAMIC LIMIT OF ORDER-BOOK DYNAMICS
- Order book model with herd behavior exhibiting long-range memory
- A scaling limit for limit order books driven by Hawkes processes
This page was built for publication: A mathematical approach to order book modeling
Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q2853371)
